REPORT OF THE ICCA-QUEEN MARY TASK FORCE ON THIRD … › s3fs-public...The ICCA-Queen Mary Task Force on Third-Party Funding is a joint Task Force established by ICCA and Queen Mary,

INTERNATIONAL COUNCIL FOR COMMERCIAL ARBITRATION

REPORT OF THE ICCA-QUEEN MARY TASK FORCE ON THIRD-PARTY FUNDING IN INTERNATIONAL

ARBITRATION

April 2018

THE ICCA REPORTS NO. 4

ICCA is pleased to present the ICCA Reports series in the hope that these occasional papers, prepared by ICCA interest groups and project groups, will stimulate discussion and debate.

INTERNATIONAL COUNCIL FOR COMMERCIAL ARBITRATION

REPORT OF THE ICCA-QUEEN MARY TASK FORCE ON THIRD-PARTY FUNDING IN INTERNATIONAL

ARBITRATION

THE ICCA REPORTS NO. 4

with the assistance of the Permanent Court of Arbitration

Peace Palace, The Hague

www.arbitration-icca.org

Published by the International Council for Commercial Arbitration

ISBN 978-94-92405-10-4

All rights reserved. © 2018 International Council for Commercial Arbitration

© International Council for Commercial Arbitration (ICCA). All rights reserved. The International Council for Commercial Arbitration (ICCA) wishes to encourage the use of this Report for the promotion of arbitration. Accordingly, it is permitted to reproduce or copy this Report, provided that the Report is reproduced accurately, without alteration and in a non-misleading context, and provided that ICCA’s authorship and copyright are clearly acknowledged. For further information, please contact us at [email protected].

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Task Force Members Co-Chairs Stavros Brekoulakis William W. (Rusty) Park Catherine A. Rogers Task Force Members Mohamed Abdel Wahab Guillermo Aguilar-Alvarez Maddi Azpiroz Lisa Bingham (ex officio) R. Doak Bishop James Blick Lise Bosman (ex officio) Charles Brower Brett Carron Teresa Cheng James Clanchy Alan Crain Susan Dunn Babatunde Fagbohunlu Ania Farren Richard Fields Jonas von Goeler Alain Grec Glenn Hendrix Duarte G. Henriques Jean-Christophe Honlet Anna Joubin-Bret Sabine Konrad Susanna Khouri Kap-You (Kevin) Kim Meg Kinnear

Toby Landau Erika Levin Julian Lew Timothy Mayer Michael McIlwrath Horacio Naón Fidelis Oditah Colin Ong Nikolaus Pitkowitz Michael Pryles Walter Remmerswaal Kim Rooney Sir Bernard Rix John D. Roesser Hannah van Roessel José Rosell Ank Santens Anke Sessler Victoria Shannon Sahani Audley Sheppard Hi-Taek Shin Laurence (Larry) Shore Mick Smith Ralph Sutton Willem H. van Boom Gaëtan Verhoosel

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Investment Arbitration Sub-Committee Members* Irena Alajbeg Awn Al Khasawneh Leidylin Contreras Salma El Alaily David Gaukrodger José Luís Gomára Hernandez Andrea Horlikova Sapna Jhangiani Julian Kupka Mathieu Raux Ishido Shimpei Anke Meier Martina Polasek Stephan Schill Daniel Sharma Sylvie Tabet Ignacio Torterola

* The individuals listed, in addition to many regular Members of the Task Force, were

specially invited to participate on the Sub-Committee on Investment Arbitration. Members of the Investment Arbitration Sub-Committee were also invited to join other gatherings and activities of the main Task Force. In addition to those individuals listed, on investment arbitration topics, the Report benefitted tremendously from participants at a roundtable hosted by the Columbia Center for Sustainable Investment (CCSI). A summary of that roundtable and list of the participants is available in Annex C to the Report.

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About ICCA The International Council for Commercial Arbitration (ICCA) is a worldwide nongovernmental organization (NGO) devoted to promoting the use and improving the processes of arbitration, conciliation and other forms of resolving international disputes. Its activities include convening biennial international arbitration congresses; sponsoring authoritative dispute resolution publications (including the ICCA Yearbook Commercial Arbitration, International Handbook on Commercial Arbitration and ICCA Congress Series); and promoting the harmonization of arbitration and conciliation rules, laws and standards. ICCA has official status as an NGO recognized by the United Nations. See . About Queen Mary Queen Mary University of London is one of the UK’s leading research-focused higher education institutions and one of the biggest University of London colleges. It offers teaching and produces research across a wide range of subjects in the humanities, social sciences, law, medicine and dentistry, and science and engineering, for over 130 years. The School of Law at Queen Mary University of London, where more than 2,000 students study law annually, has been consistently ranked within the top 5 law schools in the UK and the top 35 law schools in the world. All views expressed in this Report are those of the Task Force and not those of Queen Mary or ICCA, its Governing Board, or members. This Report is the result of the collective efforts of the Task Force, the views expressed are not attributable to any particular Member, and all Members served in their individual capacity.

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Foreword The ICCA-Queen Mary Task Force on Third-Party Funding is a joint Task Force established by ICCA and Queen Mary, University of London in 2013. The Task Force was composed of a diverse group of leading experts from a wide range of professional backgrounds, and included arbitrators, attorneys from both in-house and law firms, representatives from arbitral institutions, states, academics, and a range of third-party funders and brokers. The Task Force is co-chaired by William W. “Rusty” Park, a member of the Governing Board of ICCA; Stavros Brekoulakis, a professor at Queen Mary, University of London; and Catherine A. Rogers, also a professor at Queen Mary, University of London, and at Penn State Law. The work of the Task Force was coordinated by ICCA Executive Director Lise Bosman and Deputy Executive Director Lisa Bingham. Preparation of this Report was undertaken by designated individuals who led sub-committees to study specific topics, which included presenting and discussing their work at numerous Task Force roundtable meetings over the course of the past four years. The compiled Report was prepared with the assistance of the co-Chairs, and presented for public comment from 1 September through 31 October 2017. During the public comment period, the Task Force benefitted from discussions at invitational and public events, as well as comments separately submitted by individuals and organizations. The activities of the Task Force and preparation of this Report were not independently funded, apart from a small donation ICCA made to support the Roundtable event at the Columbia Center for Sustainable Investment. All meetings and events were hosted pro bono by law firms, law schools, and related organizations. The Task Force is grateful for the generous support it received from various organizations that facilitated its work and hosted Task Force meetings and events and submitted comments during the public comment period, including Arnold & Porter; BCH Advogados; Berwin Leighton Paisner; Clifford Chance; the Columbia Center for Sustainable Investment; Dechert; Dentons; École de Droit de la Sorbonne; Foley Hoag; Institut de Recherche Juridique de la Sorbonne; The Law Society of England and Wales; Litigation Capital Management Limited; The Max Planck Institute Luxembourg for Procedural Law; NortonRose; Queen Mary, University of London; The Rockefeller Brothers Foundation; TDM and OGEMID; Three Crowns; the TPF Observatory; White & Case; and Wilmer Cutler Pickering Hale and Dorr, and its Scholar-in Residence Program. In addition to support from many organizations, the Task Force received extensive detailed comments from various individuals. For these contributions, the Task Force would like to specially acknowledge the following individuals: Phillip Aliker, Trinidad Alonso, Clare Ambrose, Matt Amey, Chiann Bao, Jonathan Barnett, Christopher Bogart, Gary Born, Eric Chang, Christopher Cifrino, Nicola Cox, Ahmed El Far, Alice Fremuth-Wolf, John Gaffney, Frank Garcia, Adriana González, Lukasz Gorywoda,

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Radu Giosan, Miriam Goldby, Gavan Griffith, Ali Gursel, Brooke Güven, Clifford Hendel, Melida Hodgson, Medivh Hu, Lise Johnson, Mark Kantor, Josh Karton, Nathan Landis, Anthony Mirenda, Mary Mitsi, Abayomi Okubote, Marco Paoletti, Daniel Schimmel, Stephan Schill, Woong Shik Shin, Jonathan Ward, Brad Wang, Jonathan Wood, Beibei Zhang, and the attendees of the 12 October Roundtable on Maritime and Insurance, and the 17 October Roundtable on Investment Arbitration.**

** Summary reports from these Roundtable events, along with a listing of the individuals who

participated, are attached as Annex B and Annex C, respectively, to this Report.

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Table of Contents ICCA-Queen Mary Task Force v About ICCA and Queen Mary vii Foreword ix Table of Contents xi Chapter 1: Introduction 1 Chapter 2: Overview of Dispute Funding 17 Chapter 3: Definitions 45 Chapter 4: Disclosure and Conflicts of Interest 81 Chapter 5: Privilege and Professional Secrecy 117 Chapter 6: Costs and Security for Costs 145 Chapter 7: Best Practices in Third-Party Funding Arrangements 185 Chapter 8: Third-Party Funding in Investment Arbitration 199 ANNEXES Annex A*** Annex B – Summary of Roundtable Discussion on the ICCA-Queen Mary Task Force Draft Report on Third-Party Funding in International Arbitration 229 Annex C – Roundtable Discussion of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration – Draft Report for Public Discussion 235

*** Annex A collects national reports indicating how different jurisdictions treat issues of

privilege with respect to third-party funding and is available online at: .

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Chapter 1 Introduction

I. Introduction Modern forms of “third-party funding”1 are no longer new to international arbitration.2 Recent years have seen an upsurge in the number of third-party funders, the number of funded cases, the number of law firms working with third-party funders, and the number of reported cases involving issues relating to funding. At the same time, international arbitration is increasingly used not only for disputes among commercial parties, but also disputes between states and commercial parties, and in state-to-state arbitrations. The participation of states has, in turn, focused attention from both within and outside the arbitration community on the integrity of the process, with particular focus on transparency and arbitrator conflicts of interest. As a result of these various trends, third-party funding has increasingly drawn the attention of commentators and scholars, and even more recently of arbitral institutions, national regulatory authorities, and state trade negotiators. Despite the increased attention, many questions remain about third-party funding in the context of international arbitration processes, most notably about potential arbitrator conflicts of interest, confidentiality, privilege, and costs issues. To address these questions, in 2013 the International Council for Commercial Arbitration (ICCA), in collaboration with Queen Mary, University of London, convened a Task Force on Third-Party Funding in International Arbitration. Since its inception, the Task Force has undertaken sustained study and discussion of relevant issues, and its findings are presented in the balance of this Report. This introductory chapter provides an overview of the organization and work of the Task Force. This Report is the result of the collective efforts of the Task Force. The views expressed are not attributable to any particular Member of the Task Force, and all views expressed are those of the Task Force, and not of Queen Mary or ICCA, its Governing Board, or members.

1. As examined later in the Report, the meaning and contours of the terms “third-party funder”

and “third-party funding” can be ambiguous and, in some instances, contested. Unless otherwise specified, for example in analysis of definitions in Chapter 3, the term “third-party funder” may be understood generally to refer to an entity that has no interest in the underlying merits of a dispute but provides funding or resources for the purpose of financing the legal costs and expenses of an international arbitration.

2. In some sectors, such as maritime, forms of third-party funding have long-existed. In this respect, many of the types of funding addressed in this Report may be regarded as “modern” forms of funding.

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II. Composition of the Task Force The Task Force is co-chaired by William W. “Rusty” Park, a member of the Governing Board of ICCA, Stavros Brekoulakis, a professor at Queen Mary, University of London, and Catherine A. Rogers, also a professor at Queen Mary, University of London, and Penn State Law. The work of the Task Force was coordinated by ICCA Executive Director Lise Bosman and Deputy Executive Director Lisa Bingham. The Task Force was composed of over fifty members from over twenty different jurisdictions around the world. The members included arbitrators, individuals who work for states,3 attorneys from both law firms and in-house positions, representatives with experience at arbitral institutions, academics, and a range of third-party funders and brokers. The Task Force first met as a group in February 2014, and on several subsequent occasions,4 to engage in substantive roundtable discussions. These discussions were generally organized around reports on specific topics prepared by designated Sub-Committees and presented to the Task Force. Report topics included arbitrator conflicts of interest, costs and security for costs, privilege, and implicated a range of other definitional, policy, and practical issues. The work of the Task Force and this Report also benefitted from extensive consultations, individual comments, and numerous roundtable discussions and public symposia. During a public comment period that extended from 1 September through 31 October 2017,5 the Task Force received over sixty written submissions from individuals, law firms, and organizations. It also benefitted from many additional comments both at the roundtables and symposia organized by the Task Force co-chairs, and numerous other events at which the Draft was discussed. III. Task Force Objectives The Task Force’s objectives emerged out of its work. No specific work product was initially envisaged and no specific mandate explicated. Instead, the Task Force took as its starting objective the identification of issues that arise in relation to third-party funding in international arbitration, and the determination of what outputs, if any,

3. All individuals on the Task Force serve on the Task Force in their individual capacity. 4. Task Force members met in person on a number of occasions, including in London and

Miami in 2014, in London in 2015, in Mauritius in 2016, and again in London in October 2017. These meetings were graciously hosted by Queen Mary, by law firms of Task Force members and, in the case of the October 2017 meeting, by Wilmer Cutler Pickering Hale and Dorr. The Investment Arbitration Sub-Committee met in Paris in 2014, and on several later occasions by phone. The Investment Arbitration Sub-Committee was also invited to participate in subsequent Task Force meetings.

5. A list of events at which the Task Force’s work and drafts have been presented can be found at .


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would be appropriate to address those issues. Moreover, the diverse composition of the Task Force necessitated that any objectives identified satisfy the range of perspectives and interests represented among its Members. Initially, the range of views among Task Force members largely reflected the range of perspectives that had been publicly expressed within the larger international arbitration community. Some Members were generally disinclined to produce any form of prescriptive guidance, both for substantive reasons (examined in greater detail below) and in light of what some regard as an excess of “para-regulatory” or soft law instruments in international arbitration.6 Others believed that the Task Force should aim to produce for international arbitration either a code of conduct for third-party funders, similar to the Litigation Funders Code in England and Wales, or other form of regulation. Despite these initial differences, the Task Force quickly identified two points on which Members of the Task Force agreed. First, Members agreed that all stakeholders would benefit from greater understanding about what third-party funding is and from multi-lateral dialogue about the issues it raises in international arbitration. From this observation, one of the Task Force’s primary objectives emerged: to facilitate education and informed dialogue. Second, Members agreed that stakeholders in international arbitration would benefit from greater consistency and more informed decision-making in addressing issues relating to third-party funding.7 The challenge, of course, is that however desirable consistency may be in the abstract, disagreement remains – both on the Task Force and beyond – about how and on what terms such consistency should be achieved.

6. See generally D. FAVALLI, ed., The Sense and Non-sense of Guidelines, Rules, and other

Para-regulatory Texts in International Arbitration, ASA Special Series No. 37 (Juris 2015); but see Queen Mary Survey, (finding an overall positive perception of guidelines and soft law instruments, with only 31% responding either that they were too numerous or not useful) Queen Mary, University of London and White & Case, “2015 International Arbitration Survey: Improvements and Innovations in International Arbitration” (2015) available at (last accessed 21 August 2017).

7. Norton Rose Fulbright, International Arbitration Report (September 2016) available at (last accessed 29 August 2017) (In the words of one funder, “What we seek in relation to the twin issues of adverse costs and security for costs is certainty. We simply want to know when and on what bases we will be liable to pay these amounts.”); See also W. H. VAN BOOM (“In investment arbitration, the parties do not have certainty at the beginning of proceedings if, and to what extent, the English or American rule will be applied concerning cost-shifting. This probably renders it unappealing for TPF funders to voluntarily disclose their involvement.”); see also W. H. VAN BOOM, “Third-Party Financing in International Investment Arbitration” (31 December 2011) p. 50, available at: or (last accessed 14 March 2018).

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In both public debates and on the Task Force, discussion has largely moved beyond questions about whether third-party funding should be permitted,8 to evaluation of how to address specific issues implicated by third-party funding.9 Divergent perspectives on these issues remain, however, and in turn affect how differently situated stakeholders view the appropriate means and standards for achieving consistency. The Task Force began its work cognizant of the tensions among a need for consistency, the continued evolution in debates about third-party funding, and (as discussed in greater detail below) the rapid pace of new developments both in international arbitration practice and the funding market. Against the backdrop of these tensions, the Task Force began its work by identifying the most frequently occurring issues that arise in relation to third-party funding in international arbitration. Since the Task Force was initially constituted in 2013, there have been several important developments relating to third-party funding. The funding market has expanded in several respects. The number of funded cases has increased significantly. The number and geographic diversity of third-party funders has also increased, with new entities continuing to enter the market and consequently increase the aggregate amounts available for funding. It is particularly notably that, since the founding of the Task Force, new third-party funders have emerged in Latin America and China. Perhaps most importantly, the forms of dispute financing have expanded significantly, raising challenging questions about how “third-party funder” or “third-party funding” should be defined.

8. This observation may be less true in investment arbitration. It would be virtually impossible

to prohibit funding in international commercial arbitration as parties could (and already do) effectively contract around national law prohibitions. See C. A. ROGERS, Ethics in International Arbitration (Oxford University Press 2014), pp. 190-194. It is, however, theoretically possible that funding could be prohibited in investment arbitration, for example if investment treaties or other trade instruments included prohibitions and obligations on party representatives to disclose funding. To date, responses by States in investment treaties and other trade agreements have instead focused on requirements that third-party funding be disclosed, primarily for the purpose of assessing potential conflicts of interest. For a discussion of these disclosure obligations, see Chapter 4, pp. 103-104.

9. See, e.g., F. BLAVI, “It’s About Time to Regulate Third Party Funding”, Kluwer Arbitration Blog (17 December 2015) available at (last accessed 20 August 2017) (“Whether in favor or against TPF, the industry is increasingly requiring a clear, uniform and binding regulatory framework within the field of international arbitration. This is confirmed by the results of the 2015 Queen Mary School of International Arbitration survey where a clear majority of practitioners (71%) expressed a desire for regulating the industry, and approximately half of respondents (49%) with practical experience in TPF agreed with the findings.”). Some have criticized the Queen Mary survey results as not taking sufficient account of practices in maritime arbitration. Notably, however, this Report does not attempt to address dispute funding in the maritime arbitration context.


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Other developments involve changes in the regulation of third-party funding in international arbitration. Just in 2017, the year prior to publication of this Report, prohibitions against funding international arbitrations were relaxed or eliminated in some important jurisdictions, most notably Hong Kong and Singapore.10 In conjunction with relaxing prohibitions against funding in international arbitration, these jurisdictions also introduced new regulations, most importantly with respect to disclosure for the purpose of assessing arbitrator conflicts of interest. At the same time, other international bodies have also introduced new obligations, particularly with relation to disclosure.11 Another, more amorphous development is that in recent years the poles of the debate over third-party funding appear to have moderated somewhat.12 When the Task Force first began its work, it was more common to hear, at least among some third-party funders, that funding is essentially just a form of corporate finance, which should not be subject to any regulation other than what already exists within financial markets.13 By contrast, particularly in the international investment context, there were arguments to prohibit third-party funding because of its asserted consequences for the real and perceived legitimacy of investment arbitration.14

10. For extended discussion of the Hong Kong and Singapore reforms, see Chapter 3

(Definitions) at pp. 56-60, and Chapter 4 (Disclosure and Conflicts of Interest) at pp. 102-103. 11. For a discussion of international investment treaties and agreements that address third-party

funding, see Chapter 4, at pp. 103-104. 12. As one article described, at one end of the spectrum third-party funding was regarded as the

“arbitration antichrist”, while at the other end it was regarded as “the best thing since sliced bread.” S. PERRY, “Third-Party Funding: The Best Thing Since Sliced Bread?”, Global Arbitration Review (28 November 2012) (reporting on GAR Live London debate) available at (last accessed 27 August 2017).

13. See, e.g., C. P. BOGART, “RSM vs St Lucia: Why Griffith was wrong on security for Costs”, Global Arbitration Review (11 September 2014) (“To look to the identity of the capital provider and treat specialist firms like Burford differently from other providers of financial support in litigation and arbitration is unfair and discriminatory.”) available at: (last accessed 14 March 2018).

14. See E. DE BRABANDERE and J. LEPELTAK, “Third-Party Funding in International Investment Arbitration”, 27 ICSID Review (2012, Issue 2) pp. 379-398 available at (last accessed 22 August 2017); M. DE MORPURGO, “A Comparative Legal and Economic Approach to Third-Party Litigation Funding”, 19 Cardozo Journal of International and Comparative Law (2011) p. 343 at p. 384; See M. MANIRUZZAMAN, “Third-Party Funding in International Arbitration – A Menace or Panacea?”, Kluwer Arbitration Blog (29 December 2012) available at (last accessed 20 August 2017). For coverage of this issue in the popular press, see Buzzfeed

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A number of reasons explain why some of the more extreme positions are not asserted as often or with as much vigour. First, national legal regimes are increasingly relaxing historical prohibitions against third-party funding and recognizing it as a valuable means of enabling domestic parties to access justice, as best illustrated by recent reforms in Hong Kong and Singapore.15 Meanwhile, in investment arbitration third-party funding has enabled parties to bring meritorious claims that were otherwise financially untenable, and funding has also become available to state parties in investment arbitration. Finally, as attention in international arbitration has focused on finding solutions to the high cost of arbitration for parties, funding is increasingly regarded, at least by some and particularly in the commercial arbitration context, as one potential solution to this problem. Modern forms of funding are also now recognized as functioning similarly to other more traditional means of financing legal costs, such as contingency and conditional fee arrangements and insurance, which have long-existed and are more widely accepted in many jurisdictions.16 These functional similarities can make it difficult to draw distinctions that would be a basis for limiting or precluding third-party funding, particularly in international arbitration where parties necessarily enjoy significant rights in determining their legal representation. For proponents and opponents of funding, therefore, it is now generally accepted that funding will be part of the modern reality in international arbitration.17 As a consequence of these developments, both public attention and the Task Force inquiries have largely focused on more nuanced questions: 1) What issues does funding raise in international arbitration?; and 2) How should those issues be addressed? The premise for the Task Force was that answers to these questions would best be developed through active dialogue that involves a full range of perspectives and takes account of all stakeholder interests.

News, “Let’s make them poorer and we’ll get rich” (31 August 2016) available at (last accessed 27 August 2017).

15. See Chapter 3, pp. 56-60. 16. See Chapter 2, at pp. 33-37, and Chapter 3, at pp. 46-50. 17. It is at least still theoretically possible that third-party funding could be prohibited in new

investment treaties. It appears instead that States are by implication accepting the existence of third-party funding, but increasingly including provisions that, among other things, require disclosure of third-party funders. An overview of these provisions can be found at Chapter 3, pp. 61-62. It would be more difficult, if not impossible, to effectively prohibit third-party funding in international commercial arbitration. See C. A. ROGERS, Ethics in International Arbitration, pp. 192-194.


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IV. The Scope of the Task Force’s Work Third-party funding raises a number of potential issues. The primary work of the Task Force, however, limited its work to those issues that: (1) directly affect international arbitration proceedings; and (2) are capable of being addressed at an international level. Consideration of these issues necessarily requires not only examination of what might be called “modern third-party funding”, but also the market for third-party funding, competing sources of finance, and historical analogues and functional equivalents of third-party funding. For this reason, the general discussions of the Task Force were premised on a very broad definition that sought to incorporate all these elements. However, the Task Force’s analysis of specific issues that directly affect international arbitration proceedings and are capable of being addressed at an international level (i.e., conflicts of interest, privilege, and costs and security for costs) adopted more targeted definitions that were most relevant in addressing the particular issues. This focus leaves many important issues outside the scope of the Task Force’s work and this Report. Given its focus on issues in international arbitration, the Task Force did not address several issues that are regulated at the national level. For example, many systems impose, through professional regulation or otherwise, obligations or prohibitions on attorney conduct that apply when a client is funded by someone other than the client.18 Those rules and regulations are not generally implicated in arbitral proceedings, and there is no international consensus about the reasons for and against them. The Report also does not address (except in background discussions) current and historical prohibitions against champerty and maintenance that exist in some jurisdictions. Nor does it address potentially relevant national regulation of financial markets, minimum capital requirements for funders,19 or national rules pertaining to lawyer ethics and limitations on assignment of claims.20 Although the Task Force and the Report do not directly address these issues, Chapter 7 provides some guidance for

18. For example, in the United States, attorney codes of ethics have express rules regarding an

attorney’s duty of loyalty when a third-party is paying the client’s fees. Meanwhile, many jurisdictions still prohibit contingency fee arrangements, which are often part of a third-party funding agreement.

19. See, e.g., Code of Conduct, Association of Litigation Funders, available at (last accessed 30 August 2017).

20. Although the historical common law doctrines of champerty and maintenance are the most well-known limits on third-party funding, “civil law jurisdictions’ professional attorney ethics rules and ownership of claim constraints take center role” in providing any limitations on third-party funding arrangements. See L. BENCH NIEUWVELD and V. SHANNON SAHANI, Third-Party Funding in International Arbitration, 2nd edn. (Kluwer 2017), p. 43.

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parties and counsel on those issues that are relevant to their due diligence in entering into a funding agreement.21 The Task Force’s primary focus on practical issues that arise in the arbitral proceedings also means the Report does not provide specific guidance on some larger policy issues, such as the extent to which third-party funding actually affects “access to justice” (including the often-disputed meaning of that phrase),22 whether funding may impact the overall number of arbitrations (or the number of frivolous arbitrations), or whether funding may be used for strategic purposes that are distinct form the substantive issues at stake in the merits of a particular case. These are important questions, and it is hoped that this Report may facilitate future discussion and debate about these larger policy issues. To that end, the Report often articulates competing policy arguments that were raised in or implicated by Task Force discussions, even if it does not take a particular position on such issues. The inclusion of references to policy issues continually drew concern during the drafting process and public comment period, particularly with respect to funding in investment arbitration. Policy debates over third-party funding sometimes included expression of grave concerns about both the nature and effects of third-party funding. These concerns were, in turn, often regarded as unfair and unduly inflammatory to those who provide or use third-party funding. Concerns were also expressed that some critiques of third-party funding were effectively indirect critiques of investment arbitration and investment regimes more generally.

21. For these reasons, this Report does not seek to propose “regulation” of third-party funding,

as that term is generally understood. Instead, it seeks to provide limited guidance on select key issues.

22. Debate about the meaning of this term is particularly fierce in the investment context. Those who oppose investment arbitration note that investors have the ability to bring claims in national courts or protect their interests through other means, such as political risk insurance. Under this view, the availability of these alternative channels for recourse means that third-party funding of claims in investment arbitration is not essential to provide access to justice. In addition, they point out that “justice” for an investor may result in injustice for other stakeholders that are not accounted for in investment arbitration. See, e.g., L. JOHNSON and L. SACHS, “The Outsized Costs of Investor-State Dispute Settlement”, 16 AIB Insights (2016, No. 1) p. 10, available at (last accessed 28 December 2017).

For investors and some commercial parties, the ability to bring claims in arbitration is the talisman of claims for access to justice. The term “access to justice” is also generally used, also in discussions about third-party funding in domestic litigation contexts.

Because the Report is focused on international arbitration, it uses the phrase “access to justice” generally to refer to the ability to bring claims in arbitration, assuming the existence of arbitral jurisdiction. This usage is not intended to ignore the fact that it is a contested term in some contexts, particularly in investment arbitration. For more extended discussion on this issue, see Chapter 8, pp. 206-207.


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On the other hand, in the investment context, economic and market-based analysis of claims as “assets” is regarded by some as improperly diminishing the national policy interests and sovereign prerogatives implicated in investment treaty claims. Under this view, a business model that profits by suing governments, even if in good faith, is simply problematic as it seeks to transfer wealth from the public to the private sector. In the drafting process, reference to any particular viewpoint of these policy debates typically drew concern that the Report was endorsing or legitimating a particular side of the debate. These concerns were especially acute in drafting Chapter 8, which seeks to provide an overview of policy debates in investment arbitration. The Report does not aim to resolve these larger policy issues. As noted, the primary focus of its recommendations is on issues that directly affect international arbitral proceedings. Moreover, in the absence of relevant empirical research regarding third-party funding and the rapidity at which it is evolving, such an effort would be folly. Instead, policy discussions in this Report attempt to provide a good faith accounting of the competing viewpoints and some analysis of these issues where relevant for context and to acknowledge that the specific analysis in the Report occurs in a larger and much-debated policy context. In this respect, Chapter 8 provides an independent outline of the policy issues, but again mostly to amplify the sometimes implicit policy issues raised in earlier chapters and to provide a basis for future discussion. Another important limitation on the work of the Task Force is that its recommendations do not generally apply to maritime arbitration. At least according to some definitions, third-party funding has long existed in maritime arbitration through membership of mutual insurance associations (ordinarily called “P&I Clubs” or “Defence Clubs”) that provide Protection and Indemnity (“P&I”) insurance and Freight, Demurrage and Defence (“FD&D”) cover. Despite its use of funding, the Task Force regards maritime arbitration as outside its recommendations because of its distinctive features, in particular the fact that mutual funding by P&I Clubs is well established and already subject to a set of existing practices and internal norms that were beyond the scope of the Task Force’s work.23 Notably, most efforts to regulate third-party funding, which focus on more modern forms of funding, do not appear to have contemplated specifically their effect on maritime arbitration and the funding regime that has long existed in that field. For these reasons, even though funding in maritime arbitration might presumptively fit within the Working Definition of third-party funding in this Report, it is expressly carved out

23. The term “maritime arbitration” is not easily given a strict definition. It has been used

broadly to refer to arbitrations relating in some way to a ship or to maritime affairs, but sometimes includes arbitrations in disputes regarding the construction of various types of units used in the offshore oil and gas exploration and production industries. C. AMBROSE, K. MAXWELL and M. COLLETT, London Maritime Arbitration, 4th edn. (Routledge 2017) p. 1. Although maritime arbitration is specifically identified in this carve out, the recommendations of this Report may also be inapposite for other forms of ad hoc and trade association arbitration, where more traditional forms of funding is the norm.

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from the recommendations in this Report. To the extent maritime arbitration is occasionally mentioned, the reference is only as a point of comparison. While excluding maritime arbitration, and insurance regimes that exist in that context, the Task Force did consider how modern third-party funding compares and contrasts with certain types of insurance in Chapter 3, and in its recommendations in Chapter 4 regarding disclosure. Inclusion of insurance in principles relating to disclosure for the purpose of assessing potential arbitrator conflicts is consistent with the IBA Guidelines on Conflicts of Interest, which have included insurers in its disclosure obligations since 2014. Despite including certain types of insurance consistent with the IBA Guidelines, the Task Force Report acknowledges that some (both on the Task Force and beyond) disagreed with such inclusion. It is also acknowledged that such inclusion may raise practical questions that need to be reassessed as international arbitration develops greater experience with disclosure and assessments of insurance with respect to arbitrator conflicts of interest.24 V. Organization and Structure of the Report This Report is intended to be used primarily as a reference manual. In this respect, each chapter can be read separately with regard to specific issues, but the whole can also be read together as a comprehensive work. Each of the main substantive chapters of this Report (Chapters 4, 5 and 6) begins by articulating specific Principles for each of the topics it covers. The Principles from these substantive chapters are collected in a comprehensive list both as an Appendix to this Chapter, and again in Chapter 7. The Principles and Best Practices articulated in this Report may be referred to collectively as ICCA-Queen Mary Task Force Principles on Third-Party Funding or The ICCA-Queen Mary Task Force Best Practices (the “ICCA-Queen Mary Task Force Principles” or “ICCA Queen Mary Task Force Best Practices”, respectively). The body of each of these chapters provides a detailed analysis of the sources and competing viewpoints the Task Force considered in reaching these Principles, as well as the reasons why particular viewpoints were eventually incorporated into the Principles instead of others. Beyond the Principles themselves, it is hoped that the substantive analysis and articulation of competing viewpoints will be a useful resource for future consideration of the relevant issues, particularly in light of developments that may prompt reconsideration of the Principles themselves. With respect to the structure of the Report, after this Introduction, Chapter 2 provides an overview of the market and mechanics of third-party funding. It begins with an examination of the reasons parties seek funding, and the process third-party

24. See Chapter 4, pp. 93-96.


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funders use to evaluate whether to fund a dispute. It then provides a descriptive overview of the range of means for financing disputes, including both modern case-specific non-recourse funding and a range of other sources that serve similar functions. Building on Chapter 2’s overview of the forms of funding, Chapter 3 examines the definition of third-party funders and third-party funding, and issues relating to definitions. Specifically, Chapter 3 provides broad Working Definitions of “third-party funding” and “third-party funders” that underlie the Task Force’s deliberations. These Working Definitions were drafted to facilitate wide-ranging discussion about how modern forms of third-party funding compares, interacts, and competes with other means of financing disputes, including insurance and contingency fees. The remainder of the chapter examines the reasons for particular language in different possible definitions, surveys the range of definitions that have been adopted by various other sources, and analyses the functional features of different means of dispute financing that relate to how they are definitionally categorized. Despite adopting a broad Working Definition for the purposes of its overall analysis, the Task Force recognized that addressing particular sub-issues required more narrow definitions that focus attention on the target of specific inquiries. For example, not all types of funding that may be relevant to an assessment of potential conflicts of interest may be relevant for an assessment of a request for security for costs, and vice versa. For this reason, Chapter 3 concludes by examining how different definitions affect analysis of particular issues addressed in subsequent chapters. As noted above and as elaborated in Chapter 3,25 this Report and its recommendations do not extend to maritime arbitration and the forms of funding that exist in that field. Many definitions of third-party funder and third-party funding, including the Working Definition in this Report, would ostensibly apply to traditional modes of funding in maritime arbitration. However, funding in the maritime context exists within a historical tradition and subject to a set of existing practices and internal norms that were beyond the scope of the Task Force’s work. After the chapter on definitions, the Report turns to three substantive chapters on each of the following topics: Disclosure and Conflicts of Interest (Chapter 4), Privilege (Chapter 5), and Costs and Security for Costs (Chapter 6). As noted above, debate existed on the Task Force about what form any work product should take. On the one hand, there was a desire to avoid contributing to what some regard as an overcrowding of rules and guidelines. It was decided, however, that the essential conclusions of each chapter, particularly given the length of the overall long report, should be easy to reference. For that reason, each of these chapters begins with a distilled set of Principles, which serve to summarize the essential conclusions of the relevant chapter. The body of each of these substantive chapters both identifies relevant sources and articulates competing viewpoints the Task Force considered in reaching these Principles. They also explain the reasons why particular viewpoints were eventually incorporated into the Principles instead of others. 25. See Chapter 3, p. 55.

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Chapter 4 addresses the issue of disclosure and potential arbitrator conflicts of interest. Consistent with other recent sources, the principle it articulates requires disclosure of the existence and identity of third-party funders to facilitate analysis of potential conflicts, but not (for the purposes of conflicts analysis) any other provisions of the funding agreement. It both proposes systemic disclosure by parties and counsel to arbitrators to facilitate assessment of potential conflicts, and confirms that arbitrators have the power to request disclosure of the presence and identity of any funder. The chapter does not, however, provide any new standards for assessing conflicts, but instead refers such issues to existing law, rules, and guidelines. In its analysis the chapter provides a detailed survey and analysis of other disclosure obligations. Chapter 5 addresses confidentiality and privilege. It examines international standards for evaluating privilege, and provides a survey of national differences regarding privilege, particularly the contrasting treatment by common law and civil law jurisdictions of information and communications provided to third-party funders for the purpose of obtaining funding or performing under a funding agreement. The analysis in the chapter is supported by an online Annex,26 which collects national reports indicating how different jurisdictions treat issues of privilege with respect to third-party funding. Specifically, the chapter recommends that, despite national variances, tribunals generally treat information shared with a third-party funder as protected against disclosure. Chapter 6 takes up the issue of costs and security for costs. It analyses existing standards for allocating costs and for granting security for costs, based largely on investment arbitration case law. It concludes that the existence of funding is not generally relevant to such determinations, but examines exceptions that may exist. Chapter 7 collects the Principles articulated in other chapters, and provides a summary of best practices in funding arrangements. Task Force members generally agreed that most aspects of funding arrangements were dealt with in the private agreements between funders and a funded party. Consequently, it was decided that a statement of existing best practices would be the most useful means of providing guidance to new parties seeking funding, new third-party funders entering the market, and the increasing number of arbitrators and counsel that are encountering funding for the first time. The chapter concludes with a checklist of considerations that provide additional guidance for the due diligence process. Finally, Chapter 8 examines third-party funding in investment arbitration. The analysis in each of the foregoing chapters also addresses issues and sources regarding third-party funding in investment arbitration, but those chapters focus on analysis of the current state of the law. Chapter 8, instead, seeks to examine some of the broader policy issues that may affect how the Principles of this Report are applied in investment arbitration, and a limited range of specialized issues that have arisen with respect to funding in investment arbitration. This Chapter does not seek to offer 26. The Annex (“Annex A, or the “online Annex”) is available at: .


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concrete answers on these policy questions, but instead proposes areas for future research and consideration. VI. Conclusion The Task Force hopes that parties, counsel, and arbitrators may reference or invoke the Principles and analysis in the Report to address issues that arise in the course of an arbitration, in entering into a funding agreement, and in continued discussions and debates regarding third-party funding.27 The Report may also be useful for national courts in reviewing international arbitral awards or in satellite litigation, and for regulatory bodies and arbitral institutions that seek to address issues relating to third-party funding in international arbitration. Particularly in light of how rapidly international arbitration practice and funding models are evolving, this Report does not aim to be either definitive or permanent. Changes in the field and considerations that arise within in particular regulatory contexts may require reconsideration of, or readjustment to, the Report’s Principles and amplification of its analysis. While this Report will not be the last word on issues relating to third-party funding, it develops an important set of conceptual frameworks and detailed analysis that the Task Force hopes will provide a foundation for future work in the area.

27. The Principles have been drafted to reflect existing norms and emerging trends. To that end,

it is not anticipated that they would be applied retroactively, though they may provide guidance for cases that have already been commenced.

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APPENDIX

ICCA-QUEEN MARY TASK FORCE PRINCIPLES ON THIRD-PARTY FUNDING

A. Principles Regarding Disclosure and Conflicts of Interest A.1. A party and/or its representative should, on their own initiative, disclose the

existence of a third-party funding arrangement and the identity of the funder to the arbitrators and the arbitral institution or appointing authority (if any), either as part of a first appearance or submission, or as soon as practicable after funding is provided or an arrangement to provide funding for the arbitration is entered into.

A.2. Arbitrators and arbitral institutions have the authority to expressly request that

the parties and their representatives disclose whether they are receiving support from a third-party funder and, if so, the identity of the funder.

A.3. For the purposes of disclosure, the term “third-party funder” refers to any

natural or legal person who is not a party to the dispute and is not a party’s legal counsel, but who enters into an agreement either with a party, an affiliate of that party, or a law firm representing that party:

a) in order to provide material support for or to finance part or all of the cost of the proceedings, either individually or as part of a specific range of cases, and

b) such support or financing is provided through a donation, or grant, or in exchange for remuneration or reimbursement wholly or partially dependent on the outcome of the dispute.

A.4. In light of any disclosures made regarding the participation of any third-party

funder or insurer, arbitrators and arbitral institutions should assess whether any potential conflicts of interest exist between an arbitrator and a third-party funder, and assess the need to make appropriate disclosures or take other appropriate actions that may be required under applicable laws, rules, or Guidelines.


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B. Principles Regarding Privilege and Professional Secrecy B.1. The existence of funding and the identity of a third-party funder is not subject to

any legal privilege. B.2. The specific provisions of a funding agreement may be subject to confidentiality

obligations as between the parties, and may include information that is subject to a legal privilege; as a consequence, production of such provisions should only be ordered in exceptional circumstances.

B.3. For information that is determined to be privileged under applicable laws or

rules, tribunals should not treat that privilege as waived solely because it was provided by parties or their counsel to a third-party funder for the purpose of obtaining funding or supporting the funding relationship.

B.4. If the funding agreement or information provided to a third-party funder is

deemed to be disclosable, the tribunal should permit appropriate redaction, or take other appropriate measures, and limit the purposes for which such information may be used.

C. Principles on Final Award (Allocation) of Costs C.1. Generally, at the end of an arbitration, recovery of costs should not be denied on

the basis that a party seeking costs is funded by a third-party funder. C.2. When recovery of costs is limited to costs which have been “incurred” or

“directly incurred”, the obligation of a party to reimburse the funder in the event of a successful outcome is generally sufficient for a tribunal to find that the costs of a funded party come within that limitation.

C.3. The question of whether any of the cost of funding, including a third-party

funder’s return, is recoverable as costs will depend on the definition of recoverable costs in the applicable national legislation and/or procedural rules, but generally should be subject to the test of reasonableness and disclosure of details of such funding costs from the outset of or during the arbitration so that the other party can assess its exposure.

C.4. In the absence of an express power, in applicable national legislation or

procedural rules, a tribunal would lack jurisdiction to issue a costs order against a third-party funder.

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D. Principles on Security for Costs D.1. An application for security for costs should, in the first instance, be determined on

the basis of the applicable test, without regard to the existence of any funding arrangement.

D.2. The terms of any funding arrangement, including ATE, may be relevant if relied

upon to establish that the claimant (or counterclaimant) can meet any adverse costs award (including, in particular, the funder's termination rights).

D.3. In the event that security turns out not to have been necessary, the tribunal may

hold the requesting party liable for the reasonable costs of posting such security.

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Chapter 2† Overview of Dispute Funding

I. Dispute Funding: An Introductory Overview As international arbitration continues to grow in prominence and complexity, so do the attendant costs and, consequently, demands from users of the process to find innovative ways to finance their matters.28 “Whether in favour or against, third-party funding of litigation and, more recently, arbitration, is an undeniable and important reality.”29 Anecdotal reports suggest that the global market for dispute funding – both litigation and arbitration – is currently estimated as exceeding US$ 10 billion and rapidly growing.30 The business of law is changing and dispute funding is very much an integral part of the future of the global arbitration and litigation markets. It is amidst this backdrop that an exploration of the interplay between dispute funding and international arbitration is not only increasingly timely, but of the utmost importance. The arbitration community must find a way to balance the increasing business need for innovative approaches to the financing of legal matters while protecting the integrity of the arbitral process and the ultimate enforceability of awards. The aim of this Chapter is to provide a general overview of dispute funding as it relates to international commercial and investment arbitration.

† This Chapter was authored by James Blick and Erika Levin, with input from other Members

of the Task Force. 28. See J. VON GOELER, Third-Party Funding in International Arbitration and its Impact on

Procedure, International Arbitration Law Library, Volume 35 (Kluwer Law International 2016) pp. 1-2.

29. B. M. CREMADES, “Chapter 12. Concluding remarks”, in B. M. CREMADES SANZ-PASTOR and A. DIMOLITSA, eds., Third-Party Funding in International Arbitration (ICC Dossier) (Kluwer 2013) p. 153.

30. See Financial Times, “Arbitration academics are living in the dark ages” (19 November 2017) available at (last accessed 1 December 2017). See also Burford Capital’s Quarterly Summer 2017 Overview, available at (last accessed 28 December 2017). (As of Summer 2017, Burford Capital reports that it itself has “over $2 billion invested in and available to invest in the legal market”); CREMADES, “Chapter 12. Concluding remarks”, p. 154. (“The New York City Bar Association estimated in 2011 that the aggregate amount of litigation financing outstanding exceeds US $1 billion. Fulbrook management estimated [in 2013] that there is a potential market for claimants in the United States needing financial support in the combined amount of US $8-10 billion.”).

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A. What is Dispute Funding? In less than a decade, dispute funding has moved from the fringes of a handful of common law jurisdictions to centre stage in the global commercial litigation and arbitration market. Dispute funding first started in Australia and then migrated to the United Kingdom in the beginning of the twenty-first century. While Australia, the United Kingdom, and the United States are now known to have established and thriving legal dispute funding markets, the practice continues to emerge and grow in new jurisdictions around the world (e.g., Singapore, Hong Kong, China, Latin America, and Europe).31 In its simplest form, third-party funding involves an entity, with no prior interest in the legal dispute, providing financing to one of the parties (usually the claimant). Typically, this financing is offered on a ‘non-recourse’ basis, meaning that the funder has no recourse against the funded party if the case is unsuccessful. Under this model, the funder’s recourse for repayment of the capital advanced and return on the capital invested is limited only to the claim proceeds recovered, if any. 1. Rising Demand for Funding It has been suggested that the rapid expansion of this type of funding was fuelled by the economic downturn in 2008. Many corporations and investors experienced economic instability and were unable to proceed with meritorious claims due to reduced cash flow. At the same time, investors were seeking alternative capital outlets, where returns would not be correlated to traditional markets. It remains to be shown, however, whether there is any real as opposed to coincidental correlation between the 2008 crisis and the expansion of third-party funding in international arbitration. In recent years, with the rising costs of international arbitrations32 and the additional number of constraints being placed upon corporate legal budgets, it is not surprising

31. See C. BAO, “Third Party Funding in Singapore and Hong Kong: The Next Chapter”, 34

Journal of International Arbitration (2017, Issue 3) pp. 387-400; M. SECOMB, P. TAN and T. WINGFIELD, “Third Party funding for Arbitration: An Opportunity for Singapore to Lead the Way in Regulation”, 16 Asian Dispute Review (2016, Issue 4) pp. 182-188; N. CASADO FILHO, Arbitragem e Acesso á Justiça: O Novo Paradigma do Third Party Funding (Saraiva 2017) pp. 1-272.

32. See VON GOELER, Third-Party Funding in International Arbitration and its Impact on Procedure, p. 8, fn. 1, citing CIArb Costs of International Arbitration Survey 2011, p. 13. (“Survey of 254 international commercial arbitrations conducted between 1991 and 2010 finding that claimants on average spend GPB 1,580,000 in total, while respondents spend GPB 1,413,000); UNCTAD, Investor–State Disputes, pp. 16-18 (‘[c]ontrary to the expectations, it turns out that costs involved in investor–state arbitration have skyrocketed in recent years … costs for conducting arbitration procedures are extremely high’) (emphasis original); OECD, Government Perspectives on Investor-State Dispute Settlement, p. 8 (‘legal


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that the demand for dispute funding has continued to increase. According to Professors Lisa Bench Nieuwveld and Victoria Shannon Sahani:

“[The] four main forces driving the sharp increase in the demand … [are: (1)] increasing access to justice … [; (2)] companies seeking a means to pursue a meritorious claim while also maintaining enough cash flow to continue conducting business as usual … [; (3)] worldwide market turmoil and uncertainty … which has inspired ... investors to seek investments that are not directly tied to or affected by the volatile and unpredictable financial markets … [; and (4)] third-party funding as corporate finance, whereby corporate entities … enter into bespoke arrangements … as a means of raising capital for general operating expenses or expansion to meet new business goals.”33

And:

“The global economic slowdown has also inspired companies facing bankruptcy or insolvency to seek funding to pursue claims that may generate cash flow for their businesses or mitigate the risk of losing a ’bet-the-company’ dispute.”34

Additionally, and not surprisingly, the aforementioned economic situation has increased client pressures upon law firms to deliver innovative solutions, some of which require the use of funding directly by the law firms in conjunction with the offering of alternative fee arrangements, in order to attract legal work.35 Rising demand for third-party funding has led to a rather recent boom in supply. In the last few years, a multitude of new funders have entered the global dispute financing

and arbitration costs for the parties in recent ISDS [investor-state dispute settlement] cases have averaged over USD 8 million’)”).

33. See L. BENCH NIEUWVELD and V. SHANNON SAHANI, Third-Party Funding in International Arbitration, 2nd edn. (Kluwer 2017), p. 11. See also, C. P. BOGART, “Third-Party Financing of International Arbitration”, The European Arbitration Review 2017 (GAR Special Report) (14 October 2016) available at (last accessed 28 December 2017) (“Litigation and arbitration, [particularly investor-state arbitration], are unduly expensive and frequently inefficient, and those deficiencies interfere with their ability to deliver justice.”).

34. See BENCH NIEUWVELD and SHANNON SAHANI, Third-Party Funding in International Arbitration, p. 11.

35. See N. ROWLES-DAVIES, Third Party Litigation Funding (Oxford University Press 2014) p. 61 at para. 3.08 (Lawyers “are having to be innovative to survive …. The economic climate since the ‘Great Recession’ which began in around 2008 has caused many, even traditional institutional clients, to look for ways to reduce their legal fees, along with their business costs.”)

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market. Additionally, the larger, established players are continually raising significant levels of new capital. The growth of the industry shows no signs of slowing. 2. Why is Funding Sought and by Whom? The key participants in the dispute funding process are the claim holders, funders, lawyers and, potentially, funding brokers. Funding may be sought to cover legal fees, out-of-pocket costs (e.g., expert fees, arbitrator fees, arbitral institution fees, discovery-related fees, etc...), or costs associated with subsequent enforcement actions or appeals and may be structured around a single claim or a portfolio of claims. Dispute finance is also increasingly being used by claim holders for other purposes, such as for raising working capital for the claimant entity, discharging other financial liabilities, or financing other litigation (unrelated to the claim against which the financing is secured). Historically, third-party funding was considered as being primarily a mechanism by which financially distressed claimants could obtain access to justice. However, much of the focus of the litigation finance market today is on the growing corporate utilization of funding by large, well-resourced entities. These entities may be looking for ways to manage risk, to reduce legal budgets, take the cost of pursuing arbitration off-balance sheet, or to pursue other business priorities instead of allocating resources to financing an arbitration matter.36 Put simply, funding is not only for those that are impecunious. “The use of funding offers the client the ability to minimize risk, does not have any negative effect on their cash flow, and ensures payment of lawyers.”37 a. Claimants As noted above, the vast majority of recipients of third-party funding are claimants. At one end of the spectrum, there may be a party that has invested all of its resources into a failed project and funding provides this investor with the only mechanism by which the investor can seek redress from the parties that caused its losses. Somewhere in the middle, exists a claimant who may be adequately capitalized, but nonetheless is a smaller entity than the corporation it wishes to pursue an action against. In his book, Nick Rowles-Davies provides an example that captures this scenario well.38 The example involves a mid-size company that has been wronged by a

36. See C. P. BOGART, “Third-Party Financing of International Arbitration” (Dispute funding

“has developed quickly because it allows corporations to unlock the often substantial value they have tied up in unresolved claims, and it allows them to proceed with arbitrations while retaining control of their exposure to loss”).

37. See ROWLES-DAVIES, Third Party Litigation Funding, p. 62. 38. See ROWLES-DAVIES, Third Party Litigation Funding, pp. 63-64 (highlighting a “real life

practical example of a mid-sized company deciding whether to embark on a piece of litigation … [against] a much larger competitor.”).


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much larger competitor and is faced with the decision of whether to spend its capital on vindicating its rights (and unlocking a potential recovery) or allocating those resources to its core business operations.39 Even if it does decide to self-fund the matter, it is likely that it will be outmatched in resources by its opponent. In the absence of external funding, the claimant would be in an untenable position. Funding allows the claimant to grow its business while pursuing the action in a manner that poses no cash flow burden or risk.40 At the other end of the spectrum, large corporations with strong balance sheets are increasingly employing dispute funding as a corporate finance tool that allows them to effectively manage their disputes without negatively impacting their balance sheets.41 Dispute funding for corporate clients can take on a variety of forms including traditional capital outlay by funders as well as insurance/hedge offerings, which enable clients with good liquidity to mitigate litigation risk without paying substantial returns to a third-party funder.42 As an alternative to tying up their own capital in litigation or arbitration, corporations can use dispute funding to pursue arbitrations that can help transition their in-house legal departments from cost centres to profit centres. b. Law Firms The role played by law firms in the third-party funding market is multi-faceted and evolving. In some instances, law firms, themselves, may be the users of dispute finance. For example, a law firm could seek the use of third-party funding as a way of supporting contingency fee opportunities, as discussed more fully below. In this context, the law firm would approach the funding market directly in order to seek financing options for its own fee risk exposure and enhance its ability to offer alternative billing offerings relative to its competitors. In other instances, as discussed more fully below,43 a law firm may effectively act as the provider of dispute finance, for example when offering to act on a contingency fee basis. 39. Ibid. 40. Ibid., at p. 63. 41. “Litigation can be financed – just like any other corporate expense. Yet most corporations

still pay for legal costs out of pocket, and that has a profoundly negative financial impact: reducing operating profits, impacting publicly reported earnings, and thus valuation. Litigation finance removes this problem by shifting the cost and risk of pursuing high-value litigation off corporate balance sheets.” Burford Capital, “Business Solutions”, available at (last accessed 14 August 2017).

42. R. STROM, “Litigation Finance, Sure. Litigation Insurance? UK Broker Seeks US Sales”, The Am Law Daily, available at (last accessed 14 June 2017).

43. See Chapter 4, at p. 96.

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Even where not directly a party to the funding agreement, the law firm’s role is often pivotal in a claimant’s decision as to whether it should explore the possibility of third-party funding and the approach taken if funding is sought. Although awareness of litigation finance is rising amongst corporate counsel,44 most claimants rely heavily on their legal advisors for advice relating to third-party funding, the costs and practicalities involved, and which funder(s) or broker should be approached. Funders therefore cultivate relationships with law firms in order to encourage future referrals. In some instances, even where a law firm is not a direct party to the eventual funding agreement, the firm may still be highly invested in the outcome of the approach to funders. It is not uncommon for a law firm acting for a financially distressed client to invest significant time on a speculative basis in preparing a case for presentation to funders, understanding that it will only be able to recoup that time investment if funding is successfully obtained.45 While the majority of opportunities presented to the funding market come via law firms, a growing awareness of third-party funding amongst clients has led to an increased percentage of claimants seeking funding directly, often prior to selecting a law firm (e.g., while still engaging in a law firm tender process). c. Brokers and Other Intermediaries As an alternative to approaching the funding market directly, some lawyers and claimants opt to use the services of a specialist third-party funding broker. The role of the broker is to advise on potential financing options, access a broader range of funders, and manage the process. With the ever-growing number of funds operating worldwide, as well as the range of alternative insurance structures available, brokers are regarded as playing an increasingly prominent role in the process of sourcing and structuring dispute finance arrangements. Support from funders can be either through traditional advice or new electronic platforms, which boast increased efficiency for parties. A broker is usually paid either on an up-front basis, with the execution of the funding agreement, or on a contingent basis, which is correlated to the outcome of the funded case. Depending upon the arrangement, the broker’s fees may be paid by the funder or by the claimant. There are also different types of broker services. Some brokers function as an “introducers” who can introduce the claimant to a sub-set of the funding market. Other brokers function as sell-side brokers who can introduce the claimant to the whole or a sub-set of the funding market, but who acts in the interest of the funders, while still

44. See Burford Capital, “Business Solutions”, at p. 15. 45. Given their potential self-interest in any funding arrangement, some legal systems require

that lawyers advise clients to seek independent legal advice about the funding arrangement. This Report does not directly take up issues of national attorney regulation, but related Best Practices guidance can be found in Chapter 7, p. 191.


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other brokers function as buy-side brokers, who can introduce the claimant to the whole or a sub-set of the funding market, and who represent the interest of the claimant. In order to establish what type of broker they are dealing with, a party or its counsel should seek disclosure from the broker about how they are remunerated and whether they have access to the whole funding market or just a sub-set of it. Although arguably on the rise and valuable in navigating the expanding funding markets, some questions were raised in the public comment period, particularly from third-party funders, regarding the use of brokers. Some questioned the extent to which brokers may potentially increase costs or slow down the process of obtaining funding. Other comments suggested that there may in the future be questions about confidentiality and privilege with respect to information shared with brokers. d. Respondents While far from commonplace, financing for respondents is evolving and becoming more available. Apart from scenarios where a responding party may either via a counterclaim or a successful defence of the arbitration unlock a significant financial upside, funding for respondents is still relatively rare.46 The funding of respondents poses challenges with respect to how to remunerate the funder for its provision of capital in the event of a successful defence, while avoiding any potential moral hazards created by the existence of the funding. One possible option for respondents in situations where they can value their exposure may be to identify a realistic exit point, which, if met, will trigger a payment of some amount to their funders or law firms. Akin to a reverse or inverse contingency scenario, the respondent would pay the funder for some amalgamation of “the amount by which its liability has been reduced, comparing the amount originally claimed with the amount awarded”.47 Although this structure is occasionally referenced, in practice, it does not seem to be commonplace, with only a few such arrangements having been successfully negotiated between funders and respondents. Of the few examples of respondent-side funding that exist, most involve situations where the funder has an independent financial or non-financial interest in the outcome. For example, in RSM Production Corporation v. Grenada, the respondent state was funded by a third party that apparently had a competing interest in the oil exploration rights that would have been awarded to the claimant if it prevailed.48 In addition, cause-

46. In scenarios like this, a funder could agree to defend the respondent in exchange for a

percentage of the proceeds and/or market share that are unlocked as a result of winning the case.

47. VON GOELER, Third-Party Funding in International Arbitration and its Impact on Procedure, pp. 48-49.

48. As one commentator describes:

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based funding of a defendant has occurred, for example in Philip Morris v. Uruguay,49 where the Tobacco Free Kids Foundation provided funding to Uruguay. Notably, the Uruguay case may not be an isolated example as the Bloomberg Philanthropies and The Bill and Melinda Gates Foundation have launched an “Anti-Tobacco Trade Litigation Fund” to support low- and middle-income countries.50 It has also been suggested that, similar to what occurs in WTO proceedings, states might fund other responding states, either for political reasons or because they have an interest in the legal issues being decided by the tribunal.51 As noted in following sections, the defence of a claim could also potentially be included in a portfolio arrangement. B. The Dispute Funding Process 1. Fundamentals The nature, structure, and features of third-party funding arrangements can vary significantly from case to case, as can the process involved in putting the arrangement in place. The vast majority of cases presented to any given funder are rejected by the funder for one reason or another. There are few published statistics available, however “It appears from a separate decision in a subsequent case that such third party was a

company called ‘Global Petroleum’. See Rachel S Grynberg, Stephen M Grynberg, Miriam S Grynberg and RSM Production Corporation v Grenada, ICSID Case No ARB/10/6, Tribunal’s Decision on Respondent’s Application for Security for Costs (14 October 2010) para. 4.5. Global Petroleum had been awarded the oil exploration rights lost by RSM Production Corporation in Grenada and saw an interest in having the State prevail in the arbitration. See Investment Treaty News (8 April 2010).”

J. C. HONLET, “Recent decisions on third-party funding in investment arbitration”, 30

ICSID Review (Fall 2015, Issue 3) pp. 699-712, at fn. 30, available at: (last accessed 29 January 2018). See Rachel S Grynberg, Stephen M Grynberg, Miriam. S Grynberg and RSM Production Corporation v. Grenada, (ICSID Case No. ARB 10/6), Tribunal’s Decision on Respondent’s Application for Security for Costs (14 October 2010) para. 4.5.

49. Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, ICSID Case No. ARB/10/7).

50. See Bloomberg Philanthropies Press Release, “Bloomberg Philanthropies & The Bill & Melinda Gates Foundation Launch Anti-Tobacco Trade Litigation Fund” (18 March 2015) available at (last accessed 1 November 2017).

51. M. NAGELMUELLER, “Dispute Finance for Sovereigns in WTO Disputes – Access To Justice For Developing Countries”, available at (last accessed 12 January 2018).


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anecdotal reports, as well as statements made by some funders, suggest rejection rates of 90 per cent or higher. This rate may change with the growing number of funders entering the market, coupled with lawyers and their clients’ increasing familiarity with the basic requirements of most funders. The decision about whether to fund a claim will be taken following detailed due diligence by the funder (often using external counsel, and potentially damages or technical experts), and approval by the funder’s board or investment committee. Funders are primarily concerned with the case merits, the economics of the proposed investment (criteria listed below), and the enforceability of any award. In order for a funder to seriously consider a potential opportunity, there must be an adequate demonstration of a solid claim with a healthy, recoverable margin between the anticipated damages recovery and the anticipated budget for legal fees and costs. The facts, the merits, the parties, and their representatives will all play a crucial role in this calculus. “In addition, the analysis will consider other factors such as: 1) value of the law suits; 2) amount to be advanced; 3) jurisdictional obstacles; 4) defenses; 5) nature and length of the proceeding (including whether arbitration or litigation; venue and applicable rules); 6) possibilities of settlement; 7) creditworthiness of client and the opposing party (particularly with a view to collection prospects); 8) visibility and location of the opposing party’s assets; 8) counsel chosen and compensation structure (whether there is a contingency fee agreement in place) or 9) additional obligations of the party to be funded linked to the potential risk of recovery (such as previous funding agreements or any other alliance).”52 a. Economics By far the most common reason for a potential opportunity to be turned down by a funder is not concerns over the legal merits of the case. Instead, when funders turn down a case it is more typically due to concerns that the quantum of the claim (or at least the realistic recovery or likely settlement value) will not be sufficient to justify the level of investment required to finance the arbitration budget. Funders wish to ensure that the most likely outcome will leave the claim holder with more than a minority share of the recovery. This means ensuring that the combined funding costs (reimbursement of funder’s capital and success fee, any contingent litigation insurance premium payable and any contingent fee payment to the legal team) is less than half of the total recovery. While funders’ approaches to this issue vary, many will include a fairly crude economics test in their investment criteria, requiring a minimum ratio between the funding request and a realistic claim value of 1:10. Notably, the 1:10 ratio does not assume a ten-fold return on investment. Instead, return on investment is estimated to be closer to four times the amount invested (including repayment of capital, which is referred to in the industry as a three-fold return (i.e., a return of amount invested, plus 52. B. M. CREMADES, “Chapter 12. Concluding remarks”, p. 154.

THE ICCA REPORTS

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three times that amount)). The 1:10 ratio instead means that if a funder invests US$ 1 and the claimant recovers US$ 10, the funder can recover its investment plus three-fold return, which will leave the claimant with 60 per cent of the proceeds. Notably, while three-fold or four-fold return on investment is commonly discussed in the funding industry, even those rates of return are somewhat misleading. Not all cases will win. Consequently, for an investor investing in dispute funding, the actual return on investment is unlikely to be a three-fold return, but instead more likely in actual terms to be a double digit percentage. It may be assumed that these numbers will leave a sufficient margin to allow for the claim holder to retain more than half of the claim proceeds, after deducting the cost of the funding arrangement. In this vein, most funders tend to be highly conservative when valuing claims and will concentrate on the realistic or likely “floor” value of the claim, as opposed to the maximum potential (but inherently more speculative) claim value. Funders will also carefully scrutinize the arbitration budget (assuming that the financing is being provided primarily or solely for this purpose). A light or overly optimistic budget may be a cause for concern. While the funding commitment will be limited to a fixed or staged sum, a case which exceeds the budget where there is no pre-agreed mechanism in place to deal with the overrun can be problematic for all parties, potentially necessitating renegotiation of the funding agreement mid-way through the case. Funders increasingly will address this issue upfront, potentially requesting a fee cap or an overrun agreement from the claimant’s legal team in order to secure budget certainty. Ultimately, the most desirable cases are those that have a very high (realistic) claim value as well as a high ratio between the arbitration budget and the quantum of the claim. b. Return Structures A dispute funder providing “non-recourse” litigation finance will generally expect to make a multiple return on the capital invested. This reflects both the high-risk nature of the investment as well as the Internal Rate of Return (“IRR”) expectations of those that invest in litigation funds. From the claimant’s perspective, the funder’s return (or success fee) may be structured in a number of different ways. It may be structured as a multiple of the capital invested or as a percentage of the “claim proceeds” (the amount recovered by way of damages or settlement). Some arrangements will involve a combination of these, for example the greater of 3x the capital invested or 35 per cent of the claimant’s recovery. By way of illustration, this was the structure and pricing of the funder’s return in the Norscott v. Essar case,53 in which the arbitrator accepted

53. (ICC Case No. 15790/VRO), Award (17 December 2015) Sir Philip Otton sitting as a sole

arbitrator in an arbitration subject to the International Chamber of Commerce (ICC) rules made an unusual award requiring that the Respondent be liable for the cost of the claimant’s funding arrangement, in addition to the damages awarded. Essar applied to the English Court


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evidence that the cost of the funding was reasonable in the circumstances of the specific case in question. It is also common for the funding agreement to link the funder’s return to the duration of the case (or to the amount of capital that has been drawn down), meaning that the funder’s return is lower if the case settles early, but rises throughout the proceedings. Such a structure will facilitate early settlement for the claimant, while ensuring that the return to the funder is more proportionate to the actual capital risk taken if the case settles early. While many funders target broadly similar returns, the differences from a claimant’s perspective between different funding offers on a specific matter can be huge, especially where the claim value is high. Fully understanding the commercial terms of any funding arrangement requires, at a minimum, some basic financial modelling in order to calculate the amount that the funder will be entitled to in a range of theoretical settlement outcomes at different stages of the case with different levels of capital deployed. With the growing number of funders competing for business and the ever-increasing diversity and complexity of funding agreements, claimants are well advised to obtain and compare (either directly or with the advice of brokers or independent counsel) multiple funding offers before entering into a funding agreement. c. Waterfall Agreement Closely related to the funder’s return structure is what is often referred to as the “waterfall agreement” or “priority agreement”. This agreement can either be included within the funding agreement or be a separate document, and will usually require execution by all “stakeholders” (i.e., those entitled to a share or contingent payment from any recovery, typically including the cla

Documents

REPORT OF THE ICCA-QUEEN MARY TASK FORCE ON THIRD … › s3fs-public...The ICCA-Queen Mary Task Force on Third-Party Funding is a joint Task Force established by ICCA and Queen Mary,